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Employee Benefit Plans

Plan Administrators – Have you Amended for the CARES Act?

By December 8, 2020No Comments

by Andrew Stear, CPA, Manager

Since the beginning of the global COVID-19 pandemic and the subsequent  enactment of the Coronavirus Aid, Relief, and Economic Security (CARES) Act , many of our clients have reached out to us to help them assess the effect  various pandemic related changes will have on their benefit plans.  This article will discuss several areas in which your benefit plan might need to consider amending its’ plan document to reflect the new legislation.

As many already know, one of the main provisions of the CARES Act has given participants expanded opportunities to access funds from their employer sponsored retirement plan through expansion of both loan and withdrawal options.   Specifically, the Act provides the option for plans to offer “qualified individuals” higher loan limits and temporary loan repayment suspension. The Act further provides the possibility for plans to allow Coronavirus-Related Distributions (commonly referred to as CRD’s).  If permitted by the plan, CRD’s would then be subject to specific limits and tax consequences in accordance with the Act.   The withdrawal and loan provisions discussed above are not required but rather permissive in nature.  In layman’s terms, the plan is not required to adopt these provisions, however if the plan sponsor elects to offer these features to participants the plan document must be amended accordingly.

Once a participant takes a CRD, the Act provides the opportunity to recontribute the withdrawn amounts within three-years.  Under the Act, re-contributions will be deemed to be within the 60 day rollover requirement if made within three-years of the distribution.  Plans would need to be amended if they choose to allow re-contributions.  As with other provisions of the Act, the acceptance of re-contributions is permissive and not required.

The CARES Act also includes specific provisions relating to defined contribution plans and IRA’s related to required minimum distributions.  The legislation allows plans to adopt and waive the required minimum distribution (“RMDs) requirement for 2020.  This waiver, if adopted, would also apply to any RMDs that were due by April 1, 2020.  Again, this provision is viewed as permissive rather than required, since distributions could still continue in accordance with the plan document.

Other considerations for amendments could include, but are not limited to, suspending company matching contributions, expanded eligibility for medical benefits paid during furlough (health and welfare plans) and the expanded use of FSA’s and HSA’s for over the counter drug purchases.

The good news is that if your plan has elected to allow these provisions, you still have time!  Plan sponsors have until the end of the plan year beginning on or after January 1, 2022 to adopt these plan amendments. Governmental plans have until the end of the plan year beginning on or after January 1, 2024 to adopt amendments.  The amendments discussed in this article are for the CARES Act, plan sponsors many also need to  amend  plan document for the SECURE Act provisions as well.

Contact your Maillie advisor today for specific guidance regarding your plan document.